Falling Australian dollar and favourable seasonal conditions boost Queensland farmer confidence

1 December 2008

Results at a Glance:

• Rural confidence has improved in Queensland, following two successive quarters of decline.
• The falling Australian dollar – along with expectations of more favourable seasonal conditions –had the biggest positive impact on farmer confidence.
• Sentiment was strongest amongst the state’s beef and cereal producers.
• Queensland agricultural producers were mostly of the opinion that they had yet to be impacted by the global credit crisis - 65 per cent of producers indicated ‘no impact as yet’.

Rural confidence has improved in Queensland, following two successive quarters of decline. Farmer sentiment has been buoyed by widespread rain and improved terms of trade for exporters, according to the results of the latest Rabobank Rural Confidence Survey.

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions an average of 1200 primary producers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

The latest survey – taken approximately one month ago – has found that more respondents expect conditions to improve over the next 12 months – 22 per cent compared to 15 per cent last quarter.

Justin Harrison, Rabobank state manager Queensland, noted that widespread rain throughout the state had helped to lift sentiment in most regions.

“Central and Southern Queensland have seen heavy rain over the last week which has halted the almost complete winter crop harvest. While rain will most likely see quality downgrades in the current wheat crop, it will provide an excellent start for sorghum plantings,” he said.

“Some storms have commenced in the top end with an early break in the wet season looking more likely. Alice Springs has seen some of the best rain in years with the Todd River finally flowing.

“Cane harvest is 90 per cent complete with most growers due to finish over the next three weeks.”

Recent falls in the Australian dollar are shielding exporters from falls in world commodity prices and attracting renewed interest from Asia for Australian beef.

Mr Harrison said “with the dollar continuing to decline, exports have been able to better withstand the global credit crisis.”

“The increased demand for boat trade cattle has taken prices to a new level, with prices of $1.80 per kilo live weight ex-Townsville being quoted,” he said, adding “even though sugar remains one of the more pessimistic sectors, recent falls in world prices have been balanced by the falling dollar, so earlier improvements have mostly been held over the last month. A number of growers have now taken the opportunity
to lock in a portion of next year’s crop.”

Of those farmers surveyed who expected conditions to decline over the next 12 months, 51 per cent cited rising input costs as a major contributing factor, down from the 70 per cent recorded last quarter.

Mr Harrison noted that while the softening international oil price had already filtered through domestically, prices for key inputs such as fertiliser remain high despite falls overseas.

“Local suppliers can sometimes struggle to source adequate fertiliser and chemicals to meet demand,” he said. “High priced inventories still carried by many suppliers are also responsible for the lag between falls in international and domestic prices.”

In addition to concerns regarding input prices, commodity prices are also a concern for most producers with wheat prices down by some 50 per cent from their highs.

Recent global financial market turmoil has had a significant impact on most agricultural commodity markets, fuelling unprecedented levels of price volatility. The price weakness seen in recent months has continued throughout October and early November with fears of a protracted global economic downturn weakening demand and price expectations for the coming year, particularly in developing nations. Australia's major agricultural commodity prices – as indicated by the Reserve Bank of Australia's Rural Commodity Index – had fallen 29 per cent in October, in US dollar terms, from a record high reached in March this year. However, Australian primary producers have been somewhat protected from the downturn in world prices by a weaker domestic currency, with the same index in Australian dollar terms falling by only five per cent over the March to October period.

Consistent with the increase in headline confidence, income expectations have also increased in the last survey period. Overall, 35 per cent of respondents expect their gross farm income to improve in the next 12 months, compared to 31 per cent who anticipated higher incomes last quarter.

Investment intentions also remain strong. In all, 83 per cent of respondents expected to either maintain or increase their level of investment over the next 12 months.

The latest Rabobank Rural Confidence Survey also found that Queensland agricultural producers were largely of the opinion that they had yet to be impacted by the global credit crisis.
When asked, ’How has the global credit crisis currently affecting the global financial sector impacted on your business?’, 65 per cent of producers responded ‘No impact
as yet’.

Grain producers and cotton producers were the most likely to be impacted, with ‘lower commodity prices’ the most common effect experienced. Other common impacts listed by producers included; ‘more difficult economic conditions’ and ‘increased input costs’.

The quarterly Rabobank Rural Confidence Survey is a definitive monitor of outlook and sentiment in Australian rural industries. The most robust study of its type in Australia, the survey has been conducted since 2000 by an independent research organisation interviewing approximately 1200 farmers throughout the country each quarter.

The next results are scheduled for release in March 2009.

Rabobank Australia is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is ranked one of the world’s safest banks by Global Finance magazine. The bank operates in 43 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank Australia is one of Australia’s leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 50 locations throughout Australia.

Contact

To arrange an interview with Justin Harrison, Rabobank state manager Queensland, or for more information on Rabobank’s Rural Confidence Survey, please contact:

Denise Shaw, Public Relations Manager
Phone: 02 8115 2744 or 0439 603 525
Email: Denise.Shaw@rabobank.com
or
Elise MacDonald, Public Relations Consultant
Phone: 02 8115 4861
Email: Elise.MacDonald@rabobank.com

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